\n
B. Deformed economic structure with low productivity <\/strong><\/p><\/div>\n\n
13.\t<\/span>The relationship between the Israeli economy and that of the Occupied Palestinian Territory remains that of two dissimilar and unequal economies, whereby the large, dominant economy practices policies that keep the small economy weak and dependent. The Palestinian labour market best epitomizes the dynamics of the relationship. Immediately following the 1967 occupation, low-skill employment of Palestinians in Israel became the most important factor in the relationship between the two economies. In addition, the income from the export of Palestinian labour to Israel, which could have been channelled into productive investment in the Occupied Palestinian Territory, became instead a major source of the financing of imports from Israel, deepening the dependence of the Occupied Palestinian Territory on Israel and solidifying the system of benefits to the occupier from the captive Palestinian economy.<\/p><\/div>\n\n
14.\t<\/span>The impact of the labour flows had two consequences. On the supply side, they induced higher wages in the domestic economy that did not arise from any increase in domestic productivity. That increased the cost of production, reduced the profitability of local production and precipitated a contraction in domestic agricultural and industrial production. On the demand side, the increase in income from the earnings of workers in Israel increased aggregate demand without an increase in production. That increase in demand for tradable goods was met by an increase in imports, and the increase in demand for non-tradable goods was met by an increase in prices. <\/p><\/div>\n\n
15.\t<\/span>This “Dutch disease” type of change in relative prices ultimately contributed to a contraction in the tradable goods sectors (agriculture and industry) and stimulated the non-tradable sectors (construction and services). It set in motion a continuous process of de-agriculturalization and de-industrialization,<\/span>3<\/sup><\/span> <\/span>thus depriving the Palestinian people of their ability to produce and, in the process, cultivating a dependence on the Israeli economy and donor aid. Figure 1 shows the structural deformation of the economy of the Occupied Palestinian Territory over the past four decades. During the period 1975-2014, the contribution of the tradable goods sector to GDP dropped by half, from 37 to 18 per cent, while its contribution to employment decreased from 47 to 23 per cent. <\/span><\/p><\/div>\n\n
16.\t<\/span>Another explanation for the ongoing de-agriculturalization and de-industrialization processes in the Occupied Palestinian Territory is those sectors’ particular vulnerability to the confiscation of Palestinian land and natural resources and the excessive Israeli restrictions on the movement of Palestinian goods and labour. Since the onset of the occupation in 1967, the Palestinian people have lost access to more than 60 per cent of West Bank land and two thirds of its grazing land. In Gaza, half of the cultivable area and 85 per cent of fishery resources are inaccessible to Palestinian producers. Furthermore, Israel has been extracting water above the level determined by article 40 of appendix 1 to annex III to the Israeli-Palestinian Interim Agreement on the West Bank and the Gaza Strip of 28 September 1995 by confiscating 82 per cent of Palestinian groundwater for use inside its borders or its settlements, while the Palestinians are left with no choice but to import from Israel over 50 per cent of the water needed for consumption.<\/span>4 <\/sup><\/span>The World Bank has observed that only 35 per cent of irrigable Palestinian land is actually irrigated, which costs the economy 110,000 jobs and 10 per cent of GDP.<\/span>5\t<\/span> \t<\/span><\/sup><\/span><\/p><\/div>\n\n
Figure 1
\nStructural deformation of the economy of the Occupied Palestinian Territory, 1975-2014<\/strong><\/p><\/div>\n\n
Sectoral share of the economy by factor cost in real GDP (2004 base year)<\/strong><\/p><\/div>\n\n
<\/p><\/div>\n
<\/p>\n
\n
Sectoral share of total employment<\/strong><\/p><\/div>\n\n
<\/p><\/div>\n
\n
Source<\/i>: Ä¢¹½ÊÓÆµCTAD database, compiled on the basis of data from the Palestinian Central Bureau of Statistics. <\/p><\/div>\n\n
17.\t<\/span>In the industrial sector, the occupation and the uncertainty it breeds stifles investment and condemns the Palestinian private sector to small-scale operations with low capital intensity and low efficiency. The World Bank indicated that micro and small enterprises dominate the Palestinian business scene, with 90 per cent of firms employing less than 20 workers.<\/span>6<\/sup><\/span> <\/span>The small size of firms is correlated with low capital intensity and low labour productivity, with labour productivity in small firms at $10,000, which is only one third of that of large firms. According to the International Monetary Fund, during the period 1994-2010, the economy of the Occupied Palestinian Territory experienced a technological regression, with a 0.5 per cent annual decline in total factor productivity. Had the trend of growth of the previous period continued, real GDP per capita in the Occupied Palestinian Territory would have been 88 per cent higher than its level in 2010. In the period 2013-2015, the industrial sector witnessed further deterioration, as indicated by a 9 per cent drop in the industrial production index of the Palestinian Central Bureau of Statistics.<\/span>7\t<\/span> \t<\/span><\/sup><\/span><\/p><\/div>\n\n
18.\t<\/span>According to data released by the Palestinian Central Bureau of Statistics, in the past two decades, most of the Palestinian economic indicators have deteriorated, with serious ramifications for the welfare of the Palestinian people. Table 1 shows that, during the period 1995-2014, the population grew by 3.6 per cent annually, while real GDP per capita grew by only 1 per cent. Average productivity failed to grow, and unemployment increased by 9 percentage points, to 27 per cent. The trade deficit, at 40 per cent of GDP, continued to be extremely high, while economic dependence on Israel increased, as reflected in Israel’s greater share in the Palestinian trade deficit, which increased from 49 to 58 per cent during that period. Efforts by the Government of Palestine to reduce expenditure and undertake serious fiscal reforms notwithstanding, the budget deficit has not improved in the past 20 years. Reliance on donor support continues to be heavy, as reflected by the high level of current transfers, which today hover around 10 per cent of GDP.<\/p><\/div>\n<\/p>\n
\n
Table 1
\nLong-term changes in the economy of the Occupied Palestinian Territory, 1995-2014<\/strong><\/p><\/div>\n<\/p>\n
\n
<\/p><\/div>\n
\n
*Except for population, all figures exclude East Jerusalem, owing to the fact that the Palestinian Central Bureau of Statistics has no access to the city.<\/p><\/div>\n
\n
III. Conceptual basis for the economic costs of occupation<\/strong><\/p><\/div>\n\n
19.\t<\/span>As early as the 1940s, contributions were made in the academic literature in the field of economics with regard to the valuation of the cost of societal and individual losses resulting from external injuries.<\/span>8 <\/sup><\/span>Those contributions pivot around the compensation principle, which is based on the understanding that, if a change in a situation would result in some persons being better off and others worse off, those who gain could compensate those who lose in such a way that, on balance, everyone would be better off. This conception of economic loss of injuries (compensation) also assumes that societal welfare losses are the sum of individual losses owing to the loss of private goods, in addition to the societal losses of public goods (those goods of which one individual’s consumption does not diminish their availability to other members of society). <\/span><\/p><\/div>\n\n
20.\t<\/span>Economic loss owing to, or in compensation for, external injuries is synonymous with indemnification in the legal meaning of the undoing of damage done and losses suffered. Total indemnification means, in essence, a return to the situation that existed before the loss was incurred. If it is done by way of restitution, the prior situation is restored <\/span>in specie<\/i><\/span>. If it is done wholly or partially by way of compensation, the consequences of the damage are liquidated, although the prior situation is not restored in the true sense of the word.<\/span>9\t<\/span> \t<\/span><\/sup><\/span><\/p><\/div>\n